East Dubuque Site
We believe that our market, which is comprised of the States of Illinois, Iowa and Wisconsin, is a highly attractive nitrogen fertilizer market with strong and growing demand. Ammonia usage in our market has increased 18% over the last five years1. Based on information provided by Blue, Johnson & Associates, Inc. for the 12 months ended June 30, 2010, the amount of ammonia consumed as fertilizer in the States of Illinois, Iowa and Wisconsin was approximately 4.0 times the amount produced for sale in those states, and the amount of UAN consumed was approximately 1.4 times the amount produced for sale in those states. To meet demand, our market must rely on imports from other regions in the United States or from foreign countries. In our core market there is only one other nitrogen fertilizer facility and we believe that there are barriers of time and expense for the construction of new nitrogen fertilizer facilities in our market.
Our East Dubuque location generally allows us to realize higher average sales prices per ton of ammonia, net of transportation costs, than our publicly traded competitors, because prevailing prices for ammonia in our market factor in the transportation costs of out-of-region producers, and we generally do not have to incur such costs. Additionally, our location among the highest corn producing states allows us to sell a substantial portion of our nitrogen products into the higher-priced agricultural market, whereas our publicly traded competitors sell a significantly higher percentage of their nitrogen products into the lower-priced industrial market.
The map below shows the distribution of corn acreage in the Mid Corn Belt and the location of our facility in the heart of this region:
Our location in East Dubuque allows us to sell more of our ammonia during application seasons, as opposed to the off-peak fill season, because our customers in the Mid Corn Belt typically experience two application seasons for ammonia every year, one in the spring and one in the fall. Customers are typically willing to pay premium prices for our nitrogen products during application seasons, so we seek to maximize sales during these peak periods. We believe that most other corn-growing regions in the United States typically experience only a spring application season. As a result, these regions experience a longer off-peak fill season during which fertilizer distributors can purchase products at lower prices to build inventory. We also believe that the location of our facility allows us to respond more quickly to our customers’ needs and to capture more sales during the short application seasons. In contrast, transportation constraints may cause our competitors to miss the short, weather-dependent application season sales window.
Our East Dubuque Facility is located a mile from the Northern Natural Gas Pipeline, an interstate natural gas pipeline system, which gives us the flexibility to purchase natural gas from different regions in North America and from several major natural gas suppliers. Sourcing all of our natural gas feedstock requirements from sellers in North America gives us a significant cost advantage over European nitrogen fertilizer producers, who currently are experiencing higher natural gas costs and must incur high transportation costs to service the North American market. The United States is the third largest market for nitrogen fertilizers globally and is dependent on imports, a significant portion of which comes from European producers, to supply an average of over 50% of its annual nitrogen fertilizer needs between 1999 and 2009 according to the USDA. As natural gas supplies in North America increased over the last five years1, natural gas prices and price volatility have decreased significantly and prices generally have stabilized at the lower levels.
Our Pasadena Facility’s core markets include the U.S. west of the Mississippi, and Brazil. The U.S. and Brazil are the largest consumers of ammonium sulfate (AS) in the world, consuming 2.2 and 2.3 million metric tons of AS per year, respectively. The CAGR for AS in North America and Brazil has been 1.4% and 5.2%, respectively, between the years 1999 and 2010. AS consumption growth in these two countries is expected to continue.
Our Pasadena Facility is located on the Houston Ship Channel, within the Port of Houston, one of the busiest ports in the U.S. Our two deep water docks provide us with low-cost access to the Mississippi waterway system and to ocean shipping for international product shipments. The site is also serviced by two rail systems, BNSF and Union Pacific, which provide the ability to deliver products west of the Mississippi at favorable transportation costs. The railways allow us to deliver our product to the heart of U.S. corn and wheat production, with significant freight cost advantages compared to our competitors.
Our Pasadena Facility also provides easy access to and supply of our principle raw materials, sulfur and ammonia. Sulfur is provided by major refineries in the area and is delivered to the facility mostly by truck. Ammonia is provided by a large ammonia producer under contract and delivered to the facility by a dedicated, time-chartered barge. Rail can be used as a secondary method to deliver ammonia to the plant.
1 For the last five years ended December 31,2010.